Price elasticity of demandMarija managed to explain perfectly what is the price elasticity and what are the factors that affect it: availability of substitutes and time. In overall, it is a very scholastic presentation since Marija gives in detail how the demand of goods is changing according to the availability of substitutes, the fluctuation of the price of goods, and what impact they have on the consumers if all the other factors are being stable. Though, there is a point of which I would add some more clarification information. Marija correctly refers to water as an example of inelastic demand. She refers to juices, sparkling water etc. as substitutes of the most essential substance for the living organisms on earth. This cannot be replaced because it is vital for our health. Furthermore, these substances (or substitutions) do not include the necessary ingredients which mineral water provides to our organism. Subsequently, the demand for this product is increased, no matter the fluctuation of the price. As far as it concerns the example of rice, I totally agree with Marija, since there are a lot of other substitutes of rice. So, with an increase on the price of rice, the demand will decreased and the consumers will turn to the substitutes (elastic demand). Also, according to the customer`s need and consumer habits, preferences and health (some people are allergic to wheat, so are advised to avoid gluten), the demand for rice is low, even if the price is far above the line (again elastic demand). Nevertheless, the rice and more specific the wheat (main ingredient of rice) is an important element for the living organisms, and the demand, no matter the price is, is always high (inelastic demand) because the products that outcome of wheat, can be consumed as a full meal (rice, spaghetti, bread, cereals). However, Marija did not analyze how time effects on the variation of demand which reflects on price elasticity. A good example is given such an increase of...

YOU MAY ALSO FIND THESE DOCUMENTS HELPFUL

...PriceElasticity of Demand
T's Jean Shop sells designer jeans. The latest trend setter has been Capri cuffed blue jeans. The demand for the Capri jeans has been very high with teenagers and young women. The business has increased its supply of Capri jeans due to the high demand. The owner, Terri Johnson, contemplates increasing the price from $9.00 to $10.00. Ms. Johnson needs to know the response of the consumers to the increased price. According to McConnell and Brue (2004), the PriceElasticity of Demand measures the rate of response of quantity demanded due to a price change (p. 1).
Using PriceElasticity of Demand
In calculating the PriceElasticity of Demand, we use the formula:
percentage change in quantity
demanded of product X
Ed = percentage change in price
of product X
The percentage change in quantity demanded is divided by the percentage change in price.
change in quantity demanded of X
Ed = original quantity demanded of X
change in price of X
original price of X
According to Economics.about.com, there is another way to view...

...﻿Technical Problem 10 Chapter 6
10. Use the figure below to answer the following questions:
a. Calculate priceelasticity at point S using the method E=ΔQ × P
ΔP Q
E=ΔQ P+ 90 100
ΔP × Q= −300× 60 =−0.5
b. Calculate priceelasticity at point S using the method E=P
P−A
E=P × 100 = 100 =−0.5
P−A 100−300 −200
c. Compare the elasticities in parts a and b. Are they equal? Should they be equal?
The values of E in parts a and b are equal, as they should be, because the two methods are mathematically equivalent formulas for computing priceelasticity.
d. Calculate priceelasticity at point R.
E= P × 400 = 400 = −1. 33
P−A 400−700 −300
e. Which method did you use to compute E in part d, E=ΔQ × P or E= P ? Why?
ΔP Q P−A
At point R, Q is not given, and ΔQ/ΔP cannot be computed. Thus E = P is the only method to use at point R. P−A
Technical Problem 2 Chapter 7
2. The estimated market demand for good X is
Qˆ = 70 – 3.5P – 0.6M + 4PZ
where Qˆ is the estimated number of units of good X demanded, P is the price of the good, M is income, and PZ is the price of related good Z. (All parameter estimates are statistically significant at the 1 percent level.)
a. Is X...

...Running head: PRICEELASTICITY OF DEMANDPriceElasticity of Demand
Team Paper
University of Phoenix
Priceelasticity of Demand
With the objective of increasing the company's revenue, we have been tasked by Hyundai Motors to determine if the company should increase or decrease the price of its Sport Utility Vehicle (SUV), Santa Fe. We will use the priceelasticity of demand concept to determine what actions should be taken. Additionally, we will determine the impact on demand for the Santa Fe if the incomes of Hyundai customers increase by 10 percent. We will use the income elasticity of demand concept to help us determine that impact. Our goal is to help the company determine the best unit price to maximize revenue. We will begin with some background information on the vehicle.
Here is some background information on the vehicle. The Hyundai Santa Fe's first year of production was 2001. Not only was it their first Suburban Utility Vehicle (SUV), it was also Hyundai's first vehicle designed with American consumers in mind, "We saw that this SUV market was defined by chunky, truck-platformed models such as the Cherokee, Xterra, Wrangler, Explorer, 4Runner and the Blazer," said Hyundai's U.S. president Finnbar O'Neil,...

...Assignment 2
PriceElasticity Of DemandPriceElasticity of Demand is the quantitative measure of consumer behavior whereby there is indication of response of quantity demanded for a product or service to change in price of the good or service ( Mankiw,2007). The PriceElasticity of Demand is calculated using either the point method or the midpoint method.
The Point Method
PriceElasticity of Demand = Percentage change of Quantity Demanded
Percentage change of Price
The Midpoint Method
PriceElasticity of Demand = (Q2 ' Q1) \ [ (Q2 + Q1)/2]
(P2 ' P1) \ [ (P2 + P1)/2]
Were:
Q1= initial Quantity Demanded
Q2 = new Quantity Demanded
P1=Initial Price
P2= new Price
(Source : Mankiw 2007)
A good or service can either be elastic, inelastic or unit elastic. When the priceelasticity of demand of a commodity is elastic this is when the quantity demanded of a good or service responds significantly to the increase or decrease in price. Therefore after calculation the answer is greater than one making it elastic which means that increase in price decreases...

...Associate Level Material
Appendix B
PriceElasticity and Supply &amp; Demand
Xeco – 212
02/07/2012
Peter D. Brothers
Fill in the matrix below and describe how changes in price or quantity of the goods and services affect either supply or demand and the equilibrium price. Use the graphs from your book and the Tomlinson video tutorials as a tool to help you answer questions about the changes inprice and quantity
Event | Market affected by event | Shift in supply, demand, or both. Explain your answer. | Change in equilibrium |
Frozen orange crops in California | Orange juice | Supply (left)—Not as many available oranges to offer consumers. | Price will increase and quantity will decrease. |
Hurricanes in the Gulf Coast | Oil | Shift in supply because quantity is limited. Demand will remain the same. | The price of oil will increase because of the decrease in quantity. |
Cost of cotton decreases | Clothing | Increase in both demand and supply due to the decreased price of cotton | Price will decrease when supply increases |
Technology improves efficiency in pasta manufacturing | Grocery stores and restaurants | Increase in supply and demand because manufacturing faster increases supply which decreases price causing an increase in...

...in making price and output decisions.
PriceElasticity of Demand
The priceelasticity of demand measures the sensitivity of the quantity demanded to price. The priceelasticity of demand is the percentage change in quantity demanded brought by a 1 percent change in price. The value of priceelasticity of demand for a normal good must always be negative, reflecting the fact that demand curves slope downward because of the inverse relationship of price and quantity.
The priceelasticity of demand can be an extremely useful piece of information for business firms, nonprofit institutions, and other organizations that are deciding how to price their products or services. It is also an important determinant of the structure and nature of competition within particular industries.
To see why a business might care about the priceelasticity of demand, let’s consider how an increase in price might affect a business’s total revenue, that is, the selling price times the quantity of product it sells. One might think that when the price rises, so will the total revenue, but a higher...

...Supply, Demand, and PriceElasticity
Supply, Demand, and PriceElasticity
We use multiple products on a daily basis, from toothpaste to ink pens. Though we may use these items for mere moments, there is a different supply and demand cycle for them. Every product has a different supply and demand cycle, and this cycle varies throughout time. Some items may constantly be indemand, like cotton, and others may be in demand seasonally, like eggnog. These shifts in supply and demand may influence the price of certain products, how much of the product is available at any given time, etc. Commodities available during only peak times throughout the year may even be substituted with a similar item. These seasonal items are considered inelastic whereas easily substituted items possess elasticity. Priceelasticity of supply is a way to measure the responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product’s price (Hubbard186). Priceelasticity of demand is a way to measure the responsiveness of the quantity demanded to a change in price, measured by dividing the...

...Supply & Demand, and PriceElasticity
All things in our society are connected in some way, for example, how humans relate to each other. Complex ideas and analysis are not without their own set of unique connections. The intricate theories of economics are a prime example of this connection. To gain an accurate understanding of how supply and demand are connected, and its role within the market, one must analyze the functions of each as separate entities, and how they relate to economics as a whole.
To begin analysis, one must examine what causes change between supply and demand. Once this has been achieved, investigating how changes in price and quantity influence market equilibrium, and how the necessity of a good and the availability of substitutions impact priceelasticity will need to be conducted. The final step will be to compare and contrast market systems and the role of an economist within these systems.
In order to discover what causes change in supply and demand, people need to understand the definition, different forms, components, and principles. Supply is defined as the amount of product a producer is willing to provide or sell, while demand is the amount of product a buyer is willing to receive or buy. There are two forms of supply: individual and market. Individual supply is the amount of product offered at...